RBI’s 25bps rate cut good, but is it enough to boost housing demand?

Realtors’ apex body CREDAI on Friday said the RBI's decision to cut benchmark lending rate by 25 basis points might have "limited direct impact" and sought further reduction in the next monetary policy meet for "stronger impetus" to housing demand.

Reduction in repo rate may lead to lowering of interest rates on home loans provided banks decide to pass on the benefits.

Commenting on the monetary policy announcement, CREDAI National President Boman Irani said, “The RBI’s decision to reduce repo rate by 25 basis points to 6.25 per cent supplements recent announcements in the Budget aimed at boosting spending and spur economic growth.”

Rate reduction after five years

• The RBI under new Governor Sanjay Malhotra on Friday cut interest rate for the first time in nearly five years as the central bank pivoted the policy stance to support a shuttering economy.
• The 25 basis points rate cut to 6.25 per cent comes after last rate reduction in May 2020.
• The last revision of rates happened in February 2023 when the policy rate was hiked by 25 basis points to 6.5 per cent.

This supportive monetary policy was "imperative", especially after the recent 50 basis points reduction in Cash Reserve Ratio (CRR), which has already injected significant liquidity into the banking system, he added.

“While the current cut may have a limited direct impact, we anticipate that a further rate cut in the next MPC meeting will provide stronger impetus to overall demand, accelerating housing sales, particularly in the mid-income and affordable segments,” Irani observed.

According to data analytics firm PropEquity, housing sales across nine major cities dropped 9 per cent to nearly 4.71 lakh units in 2024 on lower demand as well as fall in fresh supply. Sales were driven mainly by premium, luxury and ultra luxury segments.

Realtors' body Naredco Chairman Niranjan Hiranandani said, “Combined with the tax benefits announced in the FY26 Budget for the middle class, this policy change will boost sales velocity. Thus, lowered interest rates will further nudge homebuyers to buy an ownership home with an upgraded lifestyle.”

Anshuman Magazine, Chairman & CEO, India, Southeast Asia, Middle East & Africa, CBRE, said, “This much-awaited move by the RBI is poised to significantly boost the housing segment by stimulating demand, particularly among first-time homebuyers. It also offers an opportunity for developers to launch new projects, as this decision will also bring relief from cost pressures on construction costs. Overall, the rate cut will pave the way for expanded opportunities for buyers as well as developers.”

Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “We hope interest rate cuts will be passed on to consumers and the home loan rates become more attractive which combined with the earlier announced tax incentives spur residential demand across the different price brackets, but especially in the below Rs 50 lakh category, which has seen continued weakening of demand.

As inflation continues to remain a notch higher than the medium-term target, CREDAI president Irani said the central bank has its task cut out — contain inflation, inject liquidity into the banking system and cut repo rate in the coming quarter too.